Adam Hayes'  Instablog

Well, unemployment rate in line with expectations at 9.8%, up from last months 9.7%. BUT if you look at www.bls.gov and break down the #s a bit you get some bad news that will surely be overlooked by the mass media outlets
:
-Payrolls loss is accelerating not improving, meaning that the next few months unemployment rate % should keep creeping higher.

-Avg weekly work hours dropped to 33.0 the lowest ever (and tied with Jun'09) - this is BAD - those that are working are working less, making less weekly earnings, and means job creating will be slow to come. This could also play negatively to productivity.

-Avg (and also median) time in weeks for unemployed job seekers to look for jobs increased.. most people out of work now are waiting more than half a year to get a new job!

More »

Imagine the Gov't makes known to the public that it has printed $5 Trillion BUT it will be hoarded in a vault that will never be opened. It will never be made available to the public or private sector and the gov't itself can only tap this resource in the most dire of emergencies.
What happens to the price of dollars? Does the mere knowledge of the existence of such a sum of dollars cause inflation even though it will almost never be touched and used?
Or does the fact that it is indeed inaccessible negate the fact that it exists in terms of its effect on money supply and inflation?

I really have no idea, but I tend to think that the mere knowledge of its existance will offer some downward pressure on the dollar

The (hyper)inflation/deflation debate continues to rage amongst economists and more and more in the news. And at this point in time the answer is still unclear.
Certain things are definitely priced higher now than a few weeks ago: Oil, Gasoline, certsain food staples, equities (stocks), silver & gold, etc.
Other things are lower: consumer staples, clothing, hotel rooms, travel, Natural Gas, and so forth.
I want to touch on one point that appears to be overlooked-- the fact that you can have monetary inflation during an otherwise deflationary environment .. which can actually keep prices of many goods and services stable in general for the short-term, but be potentially disastrous in the long run.
There is certainly a deflationary pressure on wages which has filtered down to consumers who now are spending less and saving more (if they can) or paying off debt. When consumers don't spend, retailers need to cut prices in order to move inventory. When inventory is not being moved, manufacturing slows and more jobs are lost. All of this will lower both income and the cost of goods. BUT IF YOU NOTICE NONE OF THIS HAS TO DO WITH MONEY OR MONEY SUPPLY!!

While the above is happening on a fundamental basis, there is Monetary Inflation- increase in money supply, increase in gov't debt and defecit and a devaluation of the dollar as such. This technical inflation is being offset by the above fundamental deflation.

So what could possibly happen? This bomb could explode when the inflation makes it such that commodities and raw materials sold on the world market become too "expensive" in US dollars to purchase. Manufacturing will grind to a halt.. inventories will disappear because producers won't be able to afford to buy the raw goods needed to make stuff. We won't be able to import finished goods from abroad because our dollars will be worthless.

Disclosure: no positions.

The government is playing a little game with the investing public when it comes to jobs data (and others like GDP etc. - but let's focus on the jobs data). Simply, the survey of economists will produce some consensus target number and then the "actual" number will come in slightly better. The market sees this as green shoots and.. RALLY! However more times than not if you look at the REVISION - that is the adjustment to the previous release of this data to reflect what it actually should've been - is usually a bunch worse!

Let's for a moment take a look at the weekly initial (and the same trend shows up in continuing) jobless claims going back some months, i will boldface when the revision came in worse than initially reported, and underline when the reported comes in better than consensus and the revision comes in worse:

Date:                 Consensus:                Reported:                    Revision:
1/29/09                575k                            588k                            591k
2/05/09                580k                            626k                            631k
2/12/09                610k                            623k                            627k
2/19/09                620k                            627k                            631k
2/26/09                625k                            667k                            670k
3/05/09                650k                            639k                            645k
3/12/09                645k                            654k                            658k
3/19/09                654k                            646k                            644k
3/26/09                650k                            652k                            657k
4/02/09                650k                            669k                            674k
4/09/09                660k                            654k                            663k
4/16/09                660k                            610k                            613k
4/23/09                640k                            640k                            645k
4/30/09                640k                            631k                            635k
5/07/09                635k                            601k                            605k
5/14/09                611k                            637k                            643k
5/21/09                625k                            631k                            636k
5/28/09                627k                            623k                            625k
6/04/09                620k                            621k                            625k
6/11/09                615k                            601k                            605k
6/18/09                604k                            608k                            612k
6/25/09                600k                            627k                            630k
7/02/09                615k                            614k                            617k
7/09/09                603k                            565k                            569k
7/16/09                553k                            522k                            524k
7/23/09                557k                            554k                            559k
7/30/09                575k                            584k                            588k
8/06/09                580k                            550k                            554k
8/13/09                545k                            558k                            561k
8/20/09                551k                            576k                            580k
8/27/09                565k                            570k                            ???

As you can see since the end of january of this year, ALL BUT ONE revision was worse!! That means that either the Department of Labor (i.e. the Government) is really lousing at collecting the data, or more sinisterly perhaps they are fudging the reported numbers and then revising up to what they actually are on purpose since most people in the market seem to pay attention only to the headline number! 

They are making (on purporse or not) the jobless figures seem to be just a bit more rosy than they are in reality. Granted, many times the reported number comes in worse than the consensus, which is bad in and of itself.. but to then revise even worse on all but one occasion is either unacceptable sloppy or eggregious manipulation of economic data.

Either way, the marketplace will catch on sooner or later and see that this, and other economic data, cannot be trusted as hoped.

Some of the smartest economists, traders, bankers, brokers, and academics are all screaming and yelling the same things: "this rec(depr)ession is NOT over yet!"; "This is just bear market rally!"; "There are NO green shoots!".
And the data does support these beliefs-  Retail sales and consumer spending remain muted as families increase savings and pay down debts.
unemployment is not yet recovering, foreclosures are still rising while home prices are still falling. Commercial real estate is starting to falter in a major way. Oil and metals remain elevated while the dollar remains relatively weak. Banks are failing at a record pace and the FDIC is on the verge of insolvency.The government is auctioning debt at a record pace (and record % of GDP) while the deficit explodes.  Banks are still NOT lending to small businesses or homebuyers nor to each other. Much of this data is also showing no sign of decelerating.  Every week a new number comes out the revision for the previous always seems to go worse!
And the GDP numbers, when analyzed, show that Gov't spending and issuance of Gov't debt is keeping the economy from being much much worse. And what happens when BRIC countries stop buying our debt and dollars? The ponzi scheme falls apart then? And what about diminished tax rolls both local and federal due to low employment and low corporate earnings!?

On these points nearly everybody agrees - the numbers don't lie and this is what has been and is going on right now. And yet the major stock market indeces continue their march upward... not even sideways but upward indeed!

So, why do the equity markets seem to disagree with the data. What conclusions are the markets drawing, where many people including myself cannot seem to connect the same dots.  Perhaps it was the the weakening dollar is causing inflation which would produce higher stock market prices (but not necessarily higher market VALUES).. however CPI, PPI and other data suggest that inflation is nowhere to be seen (except maybe at the pump or the supermarket). So that can't be it...  Right now the S&P 500 index is trading at a higher implied P/E than it has seen in ages! Maybe a record.. and this is when the consumer isn't spending!?

Even the credit markets don't entirely agree with what is going on in the equity markets - there is still a big disconnect, and generally speaking the credit market are the "smart guys", right?
Is this all just a gigantic short squeeze? The rally seems too widespread, intense, and prolonged for a squeeze which is generally a short-lived spike of panic and covering..

So please.. share your insight. Because I am at a loss.